For the last decade, the Gallup Organization has surveyed the people of China, as both consumers of goods and employees of the companies that produce those goods. The data provide a unique picture of changing consumer attitudes, market opportunities, and management challenges.

Midcareer employees and managers, who should be at their peak of productivity, are the most disaffected segment of the workforce. Companies need to find ways to rekindle the fires of this vast, neglected group of people—or risk losing them altogether.

Strategic dreams often turn into nightmares if companies start engaging in expensive and distracting restructurings. It’s far more effective to choose a design that works reasonably well, then develop a strategic system to tune the structure to the strategy.

HBR Case Study

Consumer electronics giant USTech outsources to a Taiwanese manufacturer, which in turn farms out much of the work to its factory in China. If USTech removed the middleman, would it cut costs—or cut its own throat?

Tool Kit

Predicting customer behavior is so difficult that companies spend millions inundating—and alienating—customers. Here’s a way to crunch the data that makes it possible to offer customers what they want, when they want it.

Feature

For generations, Procter & Gamble generated most of its phenomenal growth by innovating from within—building global research facilities and hiring the best talent in the world. Back when companies were smaller and the world was less competitive, that model worked just fine. But in 2000, newly appointed CEO A.G. Lafley saw that P&G couldn’t meet its growth objectives by spending greater and greater amounts on R&D for smaller and smaller payoffs. So he dispensed with the company’s age-old “invent it ourselves” approach to innovation and instead embraced a “connect and develop” model.

By identifying promising ideas throughout the world and applying its own capabilities to them, P&G realized it could create better and cheaper products, faster. Now, the company collaborates with suppliers, competitors, scientists, entrepreneurs, and others (that’s the connect part), systematically scouring the world for proven technologies, packages, and products that P&G can improve, scale up, and market (in other words, develop), either on its own or in partnership with other companies.

Thanks partly to this connect-and-develop approach, R&D productivity at Procter & Gamble has increased by nearly 60%. In the past two years, P&G launched more than 100 new products for which some aspect of development came from outside the company. Among P&G’s most successful connect-and-develop products to hit the market are Olay Regenerist, Swiffer Dusters, the Crest SpinBrush, and the Mr. Clean Magic Eraser.

Most companies are still clinging to a bricks-and-mortar R&D infrastructure and to the idea that their innovation must principally reside within their own four walls. Until they realize that the innovation landscape has changed and acknowledge that their current model is unsustainable, top-line growth will elude them.

For the past three decades, the torrid pace of GDP growth in China has fascinated companies around the world. Western companies, in particular, have viewed the Middle Kingdom as a production powerhouse, a multinational marketer’s dream come true, or an increasingly capable competitor in branded goods marketing. But are those views grounded in reality?

To find out, the Gallup Organization undertook an ambitious ten-year, nationwide survey of Chinese consumers and employees. The group found that many of the perceptions held by companies outside—and even inside—China are inaccurate. Specifically, the findings belie at least four commonly held notions. The first is that the Chinese people, unmoored from collectivism, are now focused chiefly on working hard and getting rich. The second is that the Chinese workers now flooding the factories and offices of large cities are highly ambitious and actively engaged. The third is that the new prosperity in China allows consumers there to buy much of what they want. And the fourth is that there remains an endless hunger for household basics.

Indeed, the survey found that most Chinese citizens are more interested in expressing their individuality than in getting rich. It also showed that Chinese workers are not as engaged by their jobs as the world might think. What’s more, with the average citizen making less than $1,800 per year, only the affluent have extra money to spend. Finally, the average Chinese consumer is more interested in buying luxury and entertainment items than in purchasing basic household goods.

The Gallup survey provides much-needed scope and depth of hard data documenting the Chinese consumer—giving policy makers and executives the tools to manage the opportunities and challenges in China.

They make up more than half your workforce. They work longer hours than anyone else in your company. From their ranks come most of your top managers. They’re your midcareer employees, the solid citizens between the ages of 35 and 55 whom you bank on for their loyalty and commitment. And they’re not happy.

In fact, they’re burned out, bored, and bottlenecked, new research reveals. Only 33% of the 7,700 workers the authors surveyed feel energized by their work; 36% say they’re in dead-end jobs. One in three is not satisfied with his or her job. One in five is looking for another.

Welcome to middlescence. Like adolescence, it can be a time of frustration, confusion, and alienation. But it can also be a time of self-discovery, new direction, and fresh beginnings. Today, millions of midcareer men and women are wrestling with middlescence—looking for ways to balance work, family, and leisure while hoping to find new meaning in their jobs. The question is, Will they find it in your organization or elsewhere?

Companies are ill prepared to manage middlescence because it is so pervasive, largely invisible, and culturally uncharted. That neglect is bad for business: Many companies risk losing some of their best people or—even worse—ending up with an army of disaffected people who stay.

The best way to engage middlescents is to tap into their hunger for renewal and help them launch into more meaningful roles. Perhaps managers can’t grant a promotion to everyone who merits one in today’s flat organizations, but you may be able to offer new training, fresh assignments, mentoring opportunities, even sabbaticals or entirely new career paths within your own company.

Millions of midcareer men and women would like nothing better than to convert their restlessness into fresh energy. They just need the occasion—and perhaps a little assistance—to unleash and channel all that potential.

Examples of consumer value propositions that resonate with customers are exceptionally difficult to find. When properly constructed, value propositions force suppliers to focus on what their offerings are really worth. Once companies become disciplined about understanding their customers, they can make smarter choices about where to allocate scarce resources.

The authors illuminate the pitfalls of current approaches, then present a systematic method for developing value propositions that are meaningful to target customers and that focus suppliers’ efforts on creating superior value. When managers construct a customer value proposition, they often simply list all the benefits their offering might deliver. But the relative simplicity of this all-benefits approach may have a major drawback: benefit assertion. In other words, managers may claim advantages for features their customers don’t care about in the least.

Other suppliers try to answer the question, Why should our firm purchase your offering instead of your competitor’s? But without a detailed understanding of the customer’s requirements and preferences, suppliers can end up stressing points of difference that deliver relatively little value to the target customer. The pitfall with this approach is value presumption: assuming that any favorable points of difference must be valuable for the customer.

Drawing on the best practices of a handful of suppliers in business markets, the authors advocate a resonating focus approach. Suppliers can provide simple, yet powerfully captivating, consumer value propositions by making their offerings superior on the few elements that matter most to target customers, demonstrating and documenting the value of this superior performance, and communicating it in a way that conveys a sophisticated understanding of the customer’s business priorities.

Throughout most of modern business history, corporations have attempted to unlock value by matching their structures to their strategies: Centralization by function. Decentralization by product category or geographic region. Matrix organizations that attempt both at once. Virtual organizations. Networked organizations. Velcro organizations.

But none of these approaches has worked very well. Restructuring churn is expensive, and new structures often create new organizational problems that are as troublesome as the ones they try to solve. It takes time for employees to adapt to them, they create legacy systems that refuse to die, and a great deal of tacit knowledge gets lost in the process. Given the costs and difficulties involved in finding structural ways to unlock value, it’s fair to raise the question: Is structural change the right tool for the job?

The answer is usually no, Kaplan and Norton contend. It’s far less disruptive to choose an organizational design that works without major conflicts and then design a customized strategic system to align that structure to the strategy.

A management system based on the balanced scorecard framework is the best way to align strategy and structure, the authors suggest. Managers can use the tools of the framework to drive their unit’s performance: strategy maps to define and communicate the company’s value proposition and the scorecard to implement and monitor the strategy.

In this article, the originators of the balanced scorecard describe how two hugely different organizations—DuPont and the Royal Canadian Mounted Police—used corporate scorecards and strategy maps organized around strategic themes to realize the enormous value that their portfolios of assets, people, and skills represented. As a result, they did not have to endure a painful series of changes that simply replaced one rigid structure with another.

The growing market in credits for greenhouse gas emission put into effect by the Kyoto Protocol will have an increasingly dramatic impact not only on firms’ income statements but also on their balance sheets.

HBR Case Study

Greg Jamison, the head of global sourcing at USTech, has a complicated situation on his hands. The U.S. consumer electronics giant has long outsourced much of the design and production of its branded offerings to TaiSource, an original design manufacturer, or ODM, in Taiwan. TaiSource, in turn, has moved most of its manufacturing to Beijing, giving USTech many of the cost benefits—and none of the hassles—of sourcing in China.

But commodity producers are squeezing USTech’s margins, and higher-end rivals are gaining market share, forcing the company to rethink its sales strategy in China and its relationship with TaiSource. Greg values the close bond his firm has forged with the ODM, but he knows the sole-source model has become an anomaly in the industry. And other USTech executives want to explore direct sourcing in China and learn about other Taiwanese ODMs, known for their high quality.

When Greg hires a longtime TaiSource employee to get a feel for the fast-growing China market and scout out other suppliers in China and Taiwan, relations between the two companies start to fray. Moreover, there are signs that TaiSource plans to market its own branded goods in China. Will TaiSource and USTech end up as competitors? How can USTech protect its relationship with TaiSource while it explores sourcing and sales opportunities in Asia?

Commenting on this fictional case study are Bruce K. Riggs, the senior vice president for operations and customer care at Gateway in Irvine, California; Barry C. Lynn, a senior fellow at the New America Foundation in Washington, DC; Wang Dongsheng, the chairman and CEO of BOE Technology Group in Beijing; and Paul Gaffney, the executive vice president for supply chain at Staples in Framingham, Massachusetts.

Different Voice

Business students nowadays are not, for the most part, poets. A growing proportion come to business school with a background in investment banking or management consulting and an undergraduate business major, rather than a degree in the arts and sciences. MBA students are already very familiar with business.

A number of scholars and businesspeople have begun to question the scientific model that dominates business research and teaching. Formalized management tools work well enough if you’re studying techniques for financial valuation, but less so when you’re studying leadership and organizational behavior. Some argue that students could learn a lot more about these subjects if they took a course in literature. Examples from fiction can be as instructive as any business textbook.

HBR senior editor Diane Coutu recently met with Joseph Badaracco, Jr., for a wide-ranging discussion of what leaders can learn from literature. For the past decade, Badaracco, the John Shad Professor of Business Ethics at Harvard Business School, has used classical literature to provide well-rounded, complex pictures of leaders in all walks of life—particularly leaders whose psychological and emotional challenges parallel those of senior executives. Fiction provides some of the most powerful and engaging case studies ever written. Unlike contemporary management literature, which is relentlessly upbeat, classical literature is unsparingly realist. Leaders often struggle and sometimes fail—and the stakes are high. When business leaders read about the conflicts of literary characters, they can better understand their own circumstances.

We pay far too little attention to the inner lives of leaders. Business school courses seem to suggest that you can treat executives like lab animals and control their behavior through their environment. But behaviorism is not enough. Literature suggests that leaders should learn more about themselves if they want to succeed.

Best Practice

When employees believe they are being treated fairly—when they feel heard, when they understand how and why important decisions are made, and when they believe they are respected—their companies will benefit. Research shows that practicing process fairness reduces legal costs from wrongful-termination suits, lowers employee turnover, helps generate support for new strategic initiatives, and fosters a culture that promotes innovation. What’s more, it costs little financially to implement. Yet few companies practice it consistently.

Joel Brockner examines this paradox, exploring psychological and other reasons that cause managers to resist embracing process fairness. The fact that it’s relatively inexpensive to implement, for instance, may be why some numbers-oriented executives undervalue it. Many managers believe that they practice process fairness, but 360-degree feedback tells another story. Some corporate policies actually undermine it—such as when the legal department won’t let managers fully explain decisions for fear that disclosure could expose the firm to lawsuits. And, frequently, managers simply follow the all-too-human tendency to avoid uncomfortable situations.

But the good news is that organizations can take concrete steps to promote greater process fairness. Many studies have shown that training programs make a big difference, and the author describes the most effective format. In addition, warning your managers that they may experience negative emotions when practicing fair process will help prepare them to cope with those feelings. Finally, role modeling fair process on the executive level will help spread the practice throughout the organization.

The fact is, process fairness is the responsibility of all executives, at all levels and in all functions; it cannot be delegated to HR. The sooner managers realize that and work to make it a company norm, the better off the organization will be.

Tool Kit

Despite an abundance of data, most companies do a poor job of predicting the behavior of their customers. In fact, the authors’ research suggests that even companies that take the greatest trouble over their predictions about whether a particular customer will buy a particular product are correct only around 55% of the time—a result that hardly justifies the costs of having a CRM system in the first place. Businesses usually conclude from studies like this that it’s impossible to use the past to predict the future, so they revert to the timeworn marketing practice of inundating their customers with offers.

But as the authors explain, the reason for the poor predictions is not any basic limitation of CRM systems or the predictive power of past behavior, but rather of the mathematical methods that companies use to interpret the data. The authors have developed a new way of predicting customer behavior, based on the work of the Nobel Prize–winning economist Daniel McFadden, that delivers vastly improved results. Indeed, the methodology increases the odds of successfully predicting a specific purchase by a specific customer at a specific time to about 85%, a number that will have a major impact on any company’s marketing ROI. What’s more, using this methodology, companies can increase revenues while reducing their frequency of customer contact—evidence that overcommunication with customers may actually damage a company’s sales.

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